Government Policy: Short-term

The sudden coronavirus pandemic is causing fear, panic and chaos around the world and in Australia. It is the worst for a century. Government here has rapidly and rightly put aside everything but fighting the virus (covid-19) and supporting the community, business and the economy. It has been distracted from other serious matters such as drought, bushfires, emissions and city congestion which occupied attention prior to the virus. Fortunately, the political dissent these matters portrayed so evidently and unnecessarily has been replaced by bipartisanship in dealing with the virus. The Government has established the Emergency National Cabinet consisting of the PM, Federal Ministers, State Premiers and Territory Chief Ministers. Hopefully, this bipartisanship and collaboration will continue into future economically difficult times.

There are signs that as the virus declines in maybe six months it will have caused renewed recession on a par with the GFC. There are suggestions that this might degenerate further into world depression. The financial stress in Italy in addition to the virus may grow to trigger this later in 2020. In addition, for Australia in 2020 and 2021, there is the consequences of very low immigration as a result of closing the border. Net overseas migration of about 1% of population annually has been a safety-net for the economy post-GFC as it added around 1% pa or 50% of the average 2% pa real GDP growth. Low NOM will hit the economy while it is down. More government spending will be needed to replace it before any extra spending will lift the economy. When the virus subsides, particularly when a safe vaccine becomes available in 12 to 18 months, immigration can start again. It will boost the economy provided government spending previously employed to offset lack of immigration is maintained.

The historically low interest rate of 0.25% will have little positive effect, as have previous low interest rate reductions. Quantitative Easing (QE) may underpin stability of the financial system. Low interest rates and plentiful cash supply are invitations to spend which may or may not be taken up. Similarly. for tax incentives to invest. Only government decisions to spend and actual spending can guarantee to lift economic activity. These must be large scale for the virus, larger again for recession and really large scale for depression. Government short-term, medium-term and long-term policies are inter-related, and should be concurrently planned to be mutually reinforcing to building on one another.

(Please see Government Policy: Medium-term and Long-term)


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